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Component documentation Section 89(1) Relief Locate the document in its SAP Library structure

Purpose

This component computes the relief from tax in case of

·       Arrears payments of past financial years. There can be situations where the payments that pertain to previous financial years are made in the current financial year. These payments typically arise due to salary revisions or bonus payments in this financial year for past financial years.

·       Advance payments of future financial years. There can be situations where the payments that pertain to future financial years are made in advance in the current financial year.

There can be situations where the arrears or advance salary is taxed at a higher rate in the year of receipt as compared to the year to which it pertains. In such a case, the employee is given a relief from tax. This relief is the amount of additional tax that the employee pays in the current year on account of receiving the arrears in the current period as against having received it in the year to which it pertains.

Integration

During a retroactive payroll run across financial years, the following wage types will be populated in the Difference table (DT) for the last period of the retrospective year:

·       Add Gross Salary wage type (/616)

This wage type stores the difference between the Gross Salary actually paid and that including the arrears payments.

·       CF Empmnt tax (Prof Tax) wage type (/622)

This wage type stores the difference between the Professional Tax deducted for that year and the amount that would have been deducted if the arrears were paid in the year to which it pertains.

·       CF Section 88 Investment wage type (/6I2)

This wage type stores the difference between the Section 88 for that year and the amount that would have been contributed if the arrears were paid in the year to which it pertains. This difference in Section 88 contribution arises due to the difference in Provident Fund contribution.

·       Add Tax payable and surch wage type (/650)

This wage type stores the difference between the Tax and Surcharge deducted for that year and the amount that would have been deducted if the arrears were paid in the year to which it pertains.

In the DT, the year for which the wage type pertains to is also mentioned against the wage types. For example, in the current period April 2002, if there is a retrospective run from 2000 onwards, then in DT, /616 wage type will appear for the two years, 2000 and 2001, separately. Same is applicable for the other three wage types mentioned above.

The India Income Tax computations payroll function (INTAX) reads the DT for these wage types and generates the cluster table S89. Taking the above example, in April 2002, the India Income Tax computations payroll function (INTAX) will read the DT for the above four wage types for the two years, 2000 and 2001, and will generate the cluster table S89.

In case of a retroactive run across financial years, if the Results Table (RT) does not exist For Period 12 In Period 12 for an employee, the system will stop the processing of the payroll for the employee and will display an error message. There are some exceptions:

¡      In case of a retroactive run across financial years for an employee who was terminated before Period 12 of the year for which the retrospective payroll run is being executed, the Results Table (RT) does not exist For Period 12 In Period 12. In this case, the values of the above four wage types in the DT will be incorrect. The Modify DT with the latest available results in the 'for year' for S89 operation (INDTL), however, corrects the values of these wage types in DT. This operation is called by the Personnel calculation rule IN91 (IN91) of the Retroactive accounting INDIA schema (INNR).

¡      In case of a retroactive run across financial years for an employee who joined the organization in Period 12, and whose payroll was not run in Period 12, the Results Table (RT) does not exist For Period 12 In Period 12. In this case, you must set the value of the Cross fin Yr retro from March constant (CYFRM) of table view Payroll Constants (V_T511K) to 1. The default value of this constant is 0. You can do this in the IMG under Payroll India ® Tax ® Section 89(1) Relief ® Configure Cross Financial Year Retro for March.

Features

·       In case of Rebates and Statutory Deductions, the previous year's original amounts are taken into consideration while recalculating tax for that year. The extra amount is carried forward to the current period and treated accordingly. For example, while calculating tax for the previous year by including the arrears payments, the amount deducted as Professional Tax remains unchanged. The additional amount that should have been deducted if the arrears payments had been made in the previous year, is stored in the Professional Tax Difference wage type (/622). This amount is treated as part of the current year's Professional Tax amount for calculating current year's tax including arrears.

·       In case of Exemptions, the arrears payments made in the current year for the previous year is also taken into consideration while recalculating tax for that year. For example, while calculating tax for the previous year including the arrears payments, the House Rent Allowance (HRA) exemption is recalculated for the previous year.

·       You can choose, at the implementation level, to provide Section 89(1) Relief to your employees. In the Sec 89 Switch Implement. level constant (S89SW) of the table view Payroll Constants (V_T511K),

¡      Set the Value field to 1, if you want to provide Section 89(1) Relief to your employees.

¡      Set the Value field to 0 or leave the field blank, if you do not want to provide Section 89(1) Relief to your employees.

To do this, go to the IMG under Payroll India ® Tax ® Section 89(1) Relief ® Maintain Sec89(1) Switch at Implementation Level.

·       You can provide Section 89(1) relief to certain employees, even if you have chosen not to provide the relief to your employees at the implementation level. To do this, in the Other Statutory Deductions infotype (0588) 0004 subtype, select the indicator for Section 89(1) eligibility at employee level.

 


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